The Democratic Republic of the Congo: Staff Report for the 2007 Article IV Consultation Informational Annex
Author: International Monetary Fund
Publication Date:
24 Sep 2007
eISBN:
9781451808414
Language:
English
Keywords:
ISCR; CR; Congo; government; wage bill equivalent; real GDP; health sector rehabilitation support Project; nonfinancial support to the DRC; routine trade finance operation; public finance; reform project; Government finance statistics; Public sector; Public enterprises; External sector statistics; Africa
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This 2007 Article IV Consultation highlights that the Democratic Republic of the Congo (DRC) has made significant economic and political progress since 2001, after years of conflict and political instability. Adoption of prudent macroeconomic policies resulted in rapid disinflation and the stabilization of the exchange rate. The implementation of structural reforms made the economy more open, removed major price distortions, and strengthened macroeconomic policy management. Executive Directors have encouraged the new government to work with all parties to improve security and bring peace to all country provinces.

Abstract

This 2007 Article IV Consultation highlights that the Democratic Republic of the Congo (DRC) has made significant economic and political progress since 2001, after years of conflict and political instability. Adoption of prudent macroeconomic policies resulted in rapid disinflation and the stabilization of the exchange rate. The implementation of structural reforms made the economy more open, removed major price distortions, and strengthened macroeconomic policy management. Executive Directors have encouraged the new government to work with all parties to improve security and bring peace to all country provinces.

Democratic Republic of the Congo Relations with the Fund

(As of June 30, 2007)

I. Membership Status: Joined: September 28, 1963; Article VIII

II. General Resources Account:

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III. SDR Department:

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IV. Outstanding Purchases and Loans:

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V. Latest Financial Arrangements:

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VI. Projected Payments to Fund:

(SDR million; based on existing use of resources and present holdings of SDRs):

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VII. Implementation of HIPC Initiative:

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VIII. Implementation of MDRI Assistance: Not applicable

IX. Exchange Rate Arrangement:

The currency of the Democratic Republic of the Congo (DRC) is the Congo franc, which since May 26, 2001, has been freely floating. On June 29, 2007, the rate was US$1=CGF 496.2.

Effective February 10, 2003, the DRC accepted the obligations of Article VIII, Sections 2 (a), 3, and 4, of the Fund’s Articles of Agreement. However, the DRC maintains measures that give rise to one restriction and one multiple currency practice subject to Fund approval under Article VIII. The exchange restriction involves an outstanding net debit position against other contracting members under the inoperative regional payments agreement with the Economic Community of the Great Lakes Countries. The multiple currency practice relates to a fixed exchange rate set on a quarterly basis applying to transactions through the bilateral payments agreement with Zimbabwe.

X. Last Article IV Consultation:

The DRC is on the standard 12-month consultation cycle. The Executive Board concluded the last Article IV consultation on August 19, 2005.

XI. Safeguards Assessment:

A safeguards assessment of the central bank (BCC) was completed on January 3, 2003. The assessment concluded that there may be substantial risks of misreporting or misuse due to vulnerabilities in the external audit mechanism, financial reporting, and system internal controls. Staff findings, recommendations related to program conditionality, and other recommendations may be found in IMF Country Report No. 03/161. Staff is monitoring BCC implementation of the measures.

XII. Technical Assistance:

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XIII. Long-term Resident Experts:

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IV. Resident Representative: Mr. Maret assumed his duties as Resident Representative on November 30, 2005.

Democratic Republic of the Congo Relations with the World Bank Group

I. Introduction

1. This annex first underscores the importance that the government of the Democratic Republic of the Congo (DRC) attaches to effective partnership with international development partners and foreign investors. It then summarizes the strategy and activities of the World Bank Group (IDA, IFC, and MIGA) in the DRC. It concludes with a description of areas of specific collaboration between the World Bank Group and the International Monetary Fund.

II. Partnership in the DRC’s development strategy

2. The new duly-elected government took office in February 2007. The government presented to the Parliament its program for 2007–11, with five priority sectors, infrastructure, employment, education, water and electricity, and health. The government’s program also included a governance compact, which is a contract between the population and itself. The new government’s intentions to implement change and improve the political, economic and social environment are supported by development partners. The Consultative Group meeting, which could not take place during the electoral period, is expected to resume in November 2007. In that context, a technical meeting took place on June 25, 2007 in Kinshasa during which a Priority Action Plan (PAP, July 2007-December 2008) was endorsed by both the Government and the donor community. This will be followed up by a Consultative Group in October 2007 to further mobilize donors support to the government program.

3. The PRSP was adopted by the outgoing transitional government, and was endorsed by the new government. The PRSP is a result of extensive participatory consultations at grassroots level as well as with the international development partners. The full PRSP aims at restoring political stability, consolidating peace, and reducing poverty through fostering accelerated growth. The strategy comprises five pillars: (i) promoting good governance and consolidating peace; (ii) maintaining macroeconomic stability and growth; (iii) improving access to social services and reducing vulnerability; (iv) combating HIV/AIDS; and (v) improving community dynamics. The PRSP and the Joint Staff Advisory Note (JSAN) were discussed by the World Bank’s Board of Directors on May 31, 2007.

III. Bank Group strategy and operations (IDA, IFC, and MIGA)

4. Overall strategy. On July 31, 2001, the Executive Directors of IDA endorsed a Transitional Support Strategy to map out Bank financial and nonfinancial support to the DRC for the following 12–24 months, which included the Emergency Early Recovery Project (EERP), the Economic Recovery Credit (ERC), the Private Sector Development and Competitiveness Project (PSDC), and the Emergency Multi-Sector Rehabilitation and Reconstruction Project (EMRRP), as described hereunder. The second TSS was discussed by the Board on February 26, 2004 and covers the period 2004–06. A Country Assistance Strategy (CAS) covering the period of 2007–10 is being prepared jointly with other donors in order to be presented to the Executive Directors of IDA following consultations with the newly elected government. The new CAS will be closely aligned with the PRSP.

5. The 2004 TSS sets forth the scope and configuration of future support during 200406. The TSS accompanied government efforts during the transition period, with a particular focus on (i) social stability and security, (ii) high and shared growth, (iii) governance and institutional strengthening, and (iv) social development.

6. A Country Assistance Strategy (CAS) is under preparation, and is expected to be presented to the Board of Directors by early November 2007. The CAS is an integral part of the common assistance framework for the country, which is being developed through extensive discussions and coordination with development partners, including the IMF, the EC, the UN, and bilaterals. The governance compact proposed by the new government has been endorsed by the development partners under this common assistance framework.

A. International Development Association (IDA)

7. IDA provides support through trust funds and investment operations. There is currently no development policy operation ongoing, the most recent one having closed in December 2006. The IDA funds are made available on 100 percent grant basis in view of the country’s debt burden. Total commitments amount to about US$ 1.9 billion. Operational details are summarized in Table 1.

Table 1.

Summary of World Bank Financial Assistance

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Trust funds

8. The trust funds that are currently active target the areas of stabilization and recovery, demobilization, capacity building, support for the PRSP, forest governance, and arrears clearance.

Grants and credits
Development policy operations

9. While the Fund leads the dialogue on overall macroeconomic framework, the Bank leads the policy reform efforts of individual components contributing to good public finance management. Since the re-engagement, IDA has provided three development policy operations—the Economic Recovery Credit (ERC), the Post-Reunification Economic Recovery Credit (PRERC), and the Transitional Support to Economic Recovery Operation (TSERO). Through ERC, approved in 2002, the Bank led the policy dialogue in restructuring the mining public enterprise, improving governance of the forestry sector, and reforming public finance system, in addition to providing arrears-clearance process. The operation was implemented satisfactorily and closed in June 2003. With PRERC, approved in 2004, the Bank continued to lead the public finance reform dialogue through a civil service retirement program, a domestic debt settlement program, and utilities billing and payment reforms. These reforms allowed the government to start “cleaning house” by addressing the various types of arrears accumulated by the previous regime. The operation was implemented satisfactorily and closed in December 2005. The focus of the TSERO, approved in December 2005 in the amount of SDR 62.1 million (US$90 million equivalent at the time of negotiations), was on the continuation of improvements to the budget process, strengthening the execution of pro-poor spending, implementation of civil service management reforms, the continuation of support for reforms in natural resource sectors, and increased transparency on the revenue side. Unlike the previous two operations, which had multiple thematic tranches, TSERO was a stand-alone single- tranche operation. It disbursed fully in December 2005 and is now closed.

Investment operations

10. The IDA leads the dialogue with the authorities in the areas of social sector reforms, demobilization and disarmament, infrastructure rehabilitation, and private sector development. More specifically, investment operations include (i) infrastructure rehabilitation, including power and roads; (ii) demobilization and reintegration; (iii) emergency support to living conditions and urban, economic and social reunification (iv) private sector development; (v) debt buy back operation; (vi) social development, including multi-sectoral HIV/AIDS program and recently approved education project. Implementation of projects to date is broadly satisfactory. See Table 1 for more information about projects listed above.

Nonlending activities

11. For several years prior to and during the first TSS (2001), IDA assistance also emphasized nonlending activities and advisory services, including trust funds and grants, to improve the understanding of the socioeconomic context, rebuild the knowledge base to support policy dialogue and design effective poverty-reduction strategies. FY03 activities included a Public Expenditure Review, which focused on the overall structure of expenditures; specific issues in the health, education, and transport sectors; evaluation of the DRC’s ability to monitor execution of poverty-related expenditures; strengthening of public expenditure management systems. In FY06, the Country Financial Accountability Assessment (CFAA) was undertaken, and was officially delivered to the Government and the donor community in Kinshasa. A workshop was also organized for Government delegates, the Reform Committee, Parliament, Cour des Comptes and several donors to validate the conclusions and action plan of the report. Based of this assessment, authorities continue to gradually implement recommendations for an efficient and transparent spending circuit. A double entry accounting plan has been recently implemented. The Agricultural Sector Review was completed in FY06. The Forest Sector Review was published in FY07 with co-authorship of a series of research centers and civil society organizations.

B. International Finance Corporation (IFC)

12. IFC supported the cellular telephone operator Celtel with a US$7 million loan in 2002 and a further US$20 million in 2003. Currently, IFC is conducting a needs assessment of local small and medium enterprises to help determine potential future interventions. IFC has made a US$4.9 million equity investment for a 7.5 percent equity stake in Kingamyambo Musonoi Tailings SARL (KMT), which could become one of the first mining projects to be developed under the new Mining Code. The next step will be to complete a bankable feasibility study and raise the financing for the project. Construction is planned to begin in end-2007 or early 2008. In the financial sector, IFC plans to assist banks operating in the DRC with trade financing facilities in order to help establish routine trade finance operations. IFC will work closely with the Bank in the context of the PSDC project to help implement specific sectoral initiatives and key investment projects. Considerable effort has already been spent in resolving outstanding disputes in the DRC, two of which, UTEXAFRICA, a textile business, and the Grand Hotel du Congo (formerly Inter-Continental) were settled in 2002 and 2005, respectively. A settlement is being sought actively for the last dispute remaining on the books, SOTEXKI, a textile business in Kisangani.

C. Multilateral Investment Guarantee Agency (MIGA)

13. MIGA can now issue guarantees for projects because the DRC has paid its initial capital subscription (the DRC has been a member of the agency since 2003). Several projects are under consideration, notably in the mining sector. On May 3, 2005, MIGA approved its first project in DRC for a US$13.3 million in guarantee coverage for the Dikulushi copper and silver mine. The guarantees approved provide coverage for investments and loans by Anvil Mining Ltd. of Canada and RMB International (Dublin) Limited of Ireland to Anvil Mining Congo, SAR of the DRC, against the risks of transfer restriction, expropriation, breach of contract and war and civil disturbance. The project was also the first extractive industries project to be considered and approved by the Board of the World Bank Group, which followed the conclusion of the Bank-sponsored Extractive Industries Review in August 2004. In addition, MIGA is currently looking at non-mining deals in agribusiness, manufacturing and services.

IV. Bank-Fund collaboration in specific areas

14. In addition to its direct assistance to the DRC, the Bank also supports policy reforms in close collaboration with the Fund in a number of areas: donor coordination, public finance management, decentralization, financial sector reform, governance and anticorruption, and the PRSP process. The Fund takes the lead on macroeconomic policies aimed at facilitating stabilization and sustainable growth. The Bank complements the Fund’s work through its support to structural reforms. Table 2 details areas of collaboration and areas where either the Bank or the Fund lead.

Table 2.

Summary of Bank-Fund Collaboration

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Table 3.

The Democratic Republic of Congo: Financial Relations with the World Bank Group—Statement of Loans and Credits (in U.S. dollars), as of June 30, 2007

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This document was prepared by World Bank Staff and approved by the Africa Region Operations Committee on August 1, 2007. Questions should be addressed to Keiko Kubota (202-473-6836) or Heather Milkiewicz (202-473-3632).

Democratic Republic of the Congo Statistical Issues

Data provision to the Fund is adequate for surveillance and program monitoring purposes, but the quality of the national accounts, balance of payments, and government finance statistics need upgrading. In spite of the difficulties, the authorities have continued to produce an array of economic and financial statistics, most of which are contained in the annual report of the Central Bank of the Congo (BCC) or its monthly statistical bulletin. The Office de Gestion de la Dette Publique (OGEDEP) compiles a comprehensive set of external debt statistics. Statistical issues related to specific areas are described below.

After a fact-finding mission to Kinshasa in June 2001 in real sector and government finance statistics, STA provided technical assistance on government finance statistics in March-April and September 2002, augmented by capacity-building support from the World Bank. In October 2003, a STA multisector mission assessed economic and financial data and proposed measures to improve them. Since late-2004, a real sector statistics advisor, based in Kinshasa and serving both the Democratic Republic of Congo (approximately 70 percent of his time) and the Republic of Congo, has been assisting the authorities.

On April 24, 2004, the DRC began participating in the IMF General Data Dissemination System (GDDS); its metadata (comprehensive information on statistical production, dissemination practices, and plans for improvement) are posted on the IMF Dissemination Standards Bulletin Board and are due for update.

National accounts

The national accounts are compiled in constant and current prices by the Directorate of Research of the BCC and published yearly. The compilation methodology conforms to the System of National Accounts 1968 (1968 SNA) and is based on the balance sheets of enterprises and the results of surveys of public and semipublic enterprises and agencies. Most of the surveys date from the late 1980s. The activities of the traditional sector (including the informal sector) are estimated with extrapolation techniques using industry-specific data that are outdated. As a result, GDP is likely to be underestimated.

With help from the resident statistical advisor, work on the national accounts is underway to introduce 2005 as the new base year, incorporate the results of a recent household survey (1-2-3 Survey), as well as implement the methodological recommendations of the 1993 SNA. While outputs of this work remain to be validated and officially published, 2005 GDP estimates show a considerable upward revision compared to the published data.

Employment and unemployment

Annual data on employment in the central government are available from the Ministries of Economy, Finance, and Budget, together with data on employment in the formal sector.

Prices

Consumer price indices are calculated for Kinshasa by the BCC, the National Statistics Institute (INS), the Institute of Economic and Social Research (IESR), and the Economics Section of the U.S. Embassy in Kinshasa. The IESR also calculates a monthly consumer price index for the Lubumbashi market. The household surveys on which these calculations are based date back to the late 1980s; they need to be updated to take account of changes in household consumption patterns and demographic shifts, while geographical coverage should be expanded.

Government finance statistics

The BCC produces aggregated monthly statistics on a cash basis based on its own accounting for the government cash operations. The treasury produces two sets of monthly statistics based on its own records: one relates to the transactions executed through the BCC, the other set attempts to consolidate operations through commercial bank accounts and off-budget operations. These statistics do not rely on an integrated double-entry public accounting system and do not provide sufficient details about the nature of expenditures owing to problems in the expenditure chain. However, the treasury has started to produce quarterly expenditure data reports by ministry and institution.

The current work on tax administration and expenditure control is expected to improve the quality and timeliness of fiscal statistics. In parallel with technical assistance on public expenditure management, the STA multisector statistics advisor has been advising on government finance statistics, producing improvements in the quality of the statistics. Furthermore, adoption of a simplified double-entry bookkeeping system should significantly improve the availability of data on government financial operations.

In 2003 the DRC reported annual data up to 2002 for the IMF’s Government Finance Statistics Yearbook in the format of the Government Finance Statistics Manual 2001, but has not reported subsequently.

Monetary and financial statistics

The BCC Directorate of Research regularly produces timely monetary statistics. These statistics are now generally reliable but some problems remain with the classification of accounts.

Since the last money and banking statistics mission in June 2000, BCC reporting of data for publication in the IMF’s International Financial Statistics (IFS) has improved and monetary data are currently reported on time. The 2003 multisector statistics mission recommended a new chart of accounts for the BCC and other deposit-taking institutions, including the information needed for sectorization of economic units and classification of financial assets.

Balance of payments

Balance of payments statistics are prepared annually based on information on the exports and imports of large public and semipublic enterprises, BCC payment records, and a survey of the foreign operations of residents. The estimates also take account of information on the informal sector and foreign aid flows provided by the World Bank and the local UN Development Program (UNDP) office, which collects the data from the European Union, embassies, and nongovernmental organizations. However, the 2003 multisector mission found that, due to computer problems, data have not been processed since 1999, so balance of payments statistics are compiled using data from different sources, supplemented by estimates. The mission suggested that the BCC implement a system of quarterly surveys of corporations that are authorized to hold accounts overseas. The mission also recommended reinvigoration of a working group comprising staff of the customs and other agencies to prepare quarterly foreign trade data and take measures to improve data on services and transfers. No external sector data are reported to STA for publication.

External and domestic debt

OGEDEP compiles external and domestic debt statistics that are of reasonable quality in spite of limited computer facilities. However, data on public enterprise foreign debt and in particular on cross-arrears in the public sector are still of very poor quality. The World Bank has been providing assistance in the compilation of cross-arrears in the public sector and public sector arrears with the private sector.

Public enterprise sector

There is no comprehensive database on the operations of public enterprises, although IMF missions are provided some information on the operations of individual enterprises. Generally, data are provided annually and become available with at least a six-month delay. As part of its public enterprise reform project, the World Bank has been collecting data pertaining to the sector.

Social indicators

The most consistent data are assembled for the UNDP human development, poverty, and gender-related indices. Two multiple indicator cluster surveys carried out between 1996 and 2001 in collaboration with the UN Children’s Fund (UNICEF) also provide important social indicators. A national household living standards survey, assisted by IDA and other institutions, is planned. In addition, in the context of the interim poverty reduction strategy paper (I-PRSP), the authorities, with assistance from the World Bank and the UNDP, have begun to construct a comprehensive database for social indicators.

THE DEMOCRATIC REPUBLIC OF CONGO: TABLE OF COMMON INDICATORS REQUIRED FOR SURVEILLANCE

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Includes reserve assets pledged or otherwise encumbered as well as net derivative positions.

Both market-based and officially-determined, including discount rates, money market rates, rates on treasury bills, notes and bonds.

Foreign, domestic bank, and domestic nonbank financing.

The general government consists of the central government (budgetary funds, extra budgetary funds, and social security funds) and state and local governme

Including currency and maturity composition.

Daily (D), Weekly (W), Monthly (M), Quarterly (Q), Annually (A), Irregular (I); Not Available (NA).

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Cover IMF Staff Country Reports
Democratic Republic of the Congo: 2007 Article IV Consultation: Staff Report; Staff Supplement; Staff Statement; Public Information Notice on the Executive Board Discussion; and Statement by the Executive Director for the Democratic Republic of the Congo
Author: International Monetary Fund
Volume/Issue:
Volume 2007: Issue 327
Publisher:
International Monetary Fund
ISBN:
9781451808414
ISSN:
1934-7685
Pages:
79
DOI:
https://doi.org/10.5089/9781451808414.002